I answer these questions below after explaining an overview of Minnesota noncompete law.

Overview of Minnesota Noncompete Law

A noncompete agreement may go by many names: non-compete clause (NCC), covenant not to compete (CNC), do not compete agreement, restrictive covenant, non-solicitation agreement, or whatever title an attorney gives it. Regardless of the title, the intent is the same: one party wants to prevent another party from competing. Whether a noncompete agreement is enforceable depends on a number of factors to be analyzed by an attorney. These factors include:

Independent Consideration

Was the restricted party (the one who cannot compete) paid independent consideration (compensation) for signing the noncompete agreement? In most circumstances this consideration is financial compensation, but training and promotions can sometimes be sufficient.

Geographic Limitation

Is the geographic limitation in the noncompete agreement reasonable or too broad? This depends on the type of business. Local businesses are narrow, and international businesses are broad. The test is whether the restriction is reasonably limited to a legitimate business interest deserving protection. For example, a hair salon with most clients in a five mile radius could not enforce a noncompete covering the entire United States.

Enforcement Period

How long is the noncompete agreement in force after the employment relationship is terminated? Two years or less is generally okay for employers, but longer is suspect. Ten years is generally permitted in the sale of a business. Before you ignore a noncompete agreement, you should consult with an attorney to analyze the contract. An attorney can give you a legal opinion regarding whether the noncompete is enforceable. The consequences of breeching a noncompete agreement may include a temporary restraining order preventing you from working in violation of the noncompete along with a lawsuit for monetary damages.

1. Are Employee Noncompete Agreements Enforceable in Minnesota?

Often, employers want to prevent an employee competing with the employer at another company. The employer has to offer something to the employee (this is called “consideration”). Usually, the consideration an employer gives is (1) the job offer to a new employee or (2) a payment to an existing employee. Payments of $500 are usually sufficient, but $1 is probably not. Sometimes, “ongoing employment” can be considered consideration (see #3 below). If there is no consideration, the noncompete agreement is not enforceable. If there is consideration, the next question is whether the geographic limitation is reasonably calculated to protect a legitimate interest of the employer or whether the geographic limitation is overly broad. This depends on the facts, looking at the business operations and market of the employer. The final question is whether the duration of the noncompete is reasonable. This also is done on a case by case basis. Generally, 2-3 years is reasonable. An attorney practicing in noncompete law should stay current on how courts handle each case, which provides a precedent for future cases. The courts weigh many factors, and this area of law continues to evolve, so experienced noncompete attorneys are often needed to determine whether a noncompete agreement is enforceable, and if so, to what extent.

2. What is Involved in Drafting a Noncompete Agreement that is Enforceable?

The laws involving noncompete agreements varies across the United States. A noncompete agreement that is enforceable in one state may not be enforceable in another. For this reason, understanding Minnesota law is important. Also, noncompete contract forms purchased on the internet may be inadequate for parties in Minnesota. When I draft a noncompete agreement, the process involves carefully applying relevant Minnesota law to ensure the contract remains enforceable. Properly written noncompete agreements are routinely enforced by courts in Minnesota. However, mistakes can void the agreement. For this reason, you should consult with an attorney if you need a noncompete agreement drafted.

3. Is ‘Ongoing Employment’ Sufficient ‘Consideration’ to Make a Noncompete Enforceable?

In some cases, an employee’s continued employment may be sufficient consideration even though the employee did not sign the noncompete when starting and was never paid money for signing it. Three 2008 Minnesota Court of Appeals cases upheld noncompete provisions under a variety of circumstances:

Witzke is especially interesting because the court held that “continued employment” for a long duration after signing the noncompete will qualify as “consideration.” Previously, the general rule was that a noncompete must be accompanied by “independent consideration” (normally some sort of financial compensation) to be enforceable on a current employee. These cases supported an employer’s position that noncompete agreements are enforceable. In the end, whether a noncompete agreement is enforceable is often unclear because every situation is different. There is no clear line. For this reason, even most attorneys who are not experienced with noncompete agreements will defer to the analysis of an experienced noncompete lawyer. Thus, it goes without saying that, if you are not an attorney, you should consult with an experienced noncompete attorney to determine whether your contract is enforceable, and if so, to what extent.

4. Are Independent Contractor Noncompete Agreements Enforceable?

Noncompete agreements with independent contractors are generally enforceable. In fact, they are often more enforceable than noncompete agreements with employees because (1) courts view independent contractors as generally sophisticated businesses able to determine whether they want to be bound to an agreement and (2) the concerns over an “employee’s right to work” are not present in an independent contractor relationship. There was recently an important development in Minnesota law regarding noncompete agreements with independent contractors. The Minnesota Court of Appeals held that the the doctrine of independent consideration (which generally requires independent payment to an employee for a noncompete agreement to be valid) did not apply to independent contractors. The case is Schmidt Towing, Inc. vs. Chris Frovik d/b/a FTR Towing and Recovery, 27-CV-09-6303 (Minn. Ct. App. Nov. 9, 2010). The Minnesota Court of Appeals did not say that noncompete agreements with independent contractors are always valid. Rather, the Court of Appeals directed the district court to examine the enforceability of the noncompete agreement using “the legal principles that generally govern noncompete agreements.”

Recently, I have represented a number of professionals who were bound to noncompete agreements. Here are the general principles for each profession.

Attorney Noncompete

The Minnesota Rules of Professional Conduct prohibits the enforcement of a noncompete against another attorney. The basis for this rule is that clients should have a right to pick their attorney, and a noncompete agreement among attorneys would violate the client’s right to choose a lawyer. Thus, Minnesota law does not permit noncompete agreements among attorneys.

Dentist Noncompete

The American Dental Association’s professional code provides for “freedom of choice” for patients to select their dentist “without any type of coercion.” However, Minnesota law generally does not restrict noncompete agreements with an employee dentist.

Accountant Noncompete

Minnesota law generally does not restrict noncompete agreements with an employee accountant or certified public accountant (CPA).

Veterinarian Noncompete

No Minnesota law prohibits a noncompete agreement with an employee veterinarian. However, the American Medical Association has an opinion “discouraging” noncompete agreements.

6. Are Noncompete Agreements in the Sale of a Business Enforceable?

Noncompete agreements involving the sale of a business are generally enforceable as long as they are reasonably calculated to protect the buyer of the business. Business sellers and buyers are considered “sophisticated parties,” so they are generally bound to the language of the agreements they enter. Of course, outrageous language that is not reasonably calculated to protect the interests of the buyer may be subject to the blue pencil doctrine, where the court limits to the agreement to the scope permitted under Minnesota law.

7. FAQ (Frequently Asked Questions)

The following questions have been asked by readers along with my responses.

Question: Can a Noncompete Clause be Enforced against Some Employees or Independent Contractors but Not Others? Isn’t Selective Enforcement Illegal or a Waiver of Rights?

Answer: A noncompete agreement may be enforced against one party even though it is not enforced against another. For example, if an employer did not enforce its contract against employee A, it can still enforce its contract against employee B.

Question: Where Can I read More about the Details of Minnesota Noncompete Law?

Answer: Other Minnesota attorneys have written good articles on Minnesota noncompete law including this legal explanation of Litigating Covenants Not to Compete, by William Christopher Penwell, and this site by my friend Craig W. Trepanier.

Question: Is a Noncompete Clause that is Too Broad Void or Unenforceable?

Answer: To the extent that a court determines a noncompete agreement is too broad, it will be unenforceable. However, a court is permitted to use the “blue pencil doctrine,” which essentially enforces the agreement to the extent the law would permit. For example, if a noncompete agreement says it prohibits an employee from working worldwide, the court may “blue pencil” the contract to limit enforcement to only Minnesota.

Question: Can an Employer Recover Attorney’s Fees for Suing an Employee who Violates a Noncompete Agreement?

Answer: In general, parties suing for breach of a noncompete agreement are not entitled to recover attorney’s fees unless one of the following conditions are present:

the contract being breached states that the parties may recover attorney’s fees,

a state or federal statute specifically states that parties may recover attorneys fees, or

the employer is suing the employee’s new employer for interference with contract (a tort claim).

About the Author: Attorney Aaron Hall is CEO of Thompson Hall, a law firm that routinely represents employers and employees with noncompete agreement disputes and drafting noncompete agreements. An attorney is available to analyze noncompete agreements or represent parties seeking to understand their legal rights and options.

Written by attorney Aaron D. Hall

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Leave a Public Comment

Jeff EllingsonNovember 11, 2013, 2:55 pm

I have an engineering business, where by we help design our customers processes and then we have the equipment manufactured by our vendors. We have a new customer that we expect could place hundreds of orders with us, and we want ensure our vendors don’t go direct with our customer.
We would like to have a non-compete agreement developed between ourselves and our vendors to protect our business.
I would like to get an estimate from you on what the cost would be to develop a non-compete agreement.
Regards,

Jeff Ellingson
Tel# 651-730-4253

RickAugust 22, 2013, 4:30 pm

A new owner purchased an hair cutting business and with this had me sign an non-comp. I’m just an employee not a manager, but they gave me manager duties. Most of the time being there 6 hours by myself and NO way to contact them for the meetings and appointments they set up. My pay checks are 2 of 5 were not good and I’m not the only employee that this is happening to with our pay checks. My wife was diagnosis with cancer and the surgeon wanted me there and I needed to be there for us. One and a half hours I was asking for and the owner and manager said I could not go. My wife’s surgery is Monday and they made me choose between my wife and my job, I chose my wife. He called me and said he works with a lot attorneys and he will take my house, boat, and tie me up with the I.R.S. even though I did nothing wrong be they will make me miserable.

Thompson HallJanuary 25, 2013, 2:29 pm

Jason:

You have a very unique and specific question, determining the validity of the execution and provisions of your agreement would require additional facts and possibly the agreement itself. We would be happy to analyze your noncompete agreement and advise you on it, as well as on your legal rights and options.

Jason KellyJanuary 21, 2013, 4:25 pm

I signed a noncompete agreement when i worked in oregon under minnisota law, over 1-1/2 years working for fastenal. I was not in the top 5% paid employees, not a manager, and did not get any notice of the order until it was presented to me to sign or i would be fired. Is it legal or do i have to be notified of the order at the intial job offer, under minnisota law. Is it valid since a was not in the top 5% paid employees and not a manager.

Aaron Hall, Minnesota LawyerMay 14, 2012, 5:42 pm

Rick Cota:

What you had here was a partnership. A partnership involves both partners having fiduciary duties to each other, including the duty not to compete and joint ownership of any intellectual property created in the partnership. However, that duty ends when the partnership ends. Whether your partnershp has ended is a complex legal question, but it appears that you both are acting as though the partnership is over. Based on this assumption, you have no duty to not compete with your former partner (i.e. your brother in law).

Aaron

Aaron Hall, Minnesota LawyerApril 30, 2012, 9:01 pm

Jane:

Thank you for your comment. We would be happy to work with you. We have an attorney at our firm who is outstanding with noncompete agreements. He formerly worked at the Minnesota Supreme Court and at Minnesota’s largest law firm. He is very experienced with noncompete agreements. He would be happy to analyze your noncompete agreement and advise you on it, as well as on your legal rights and options. This can be done by meeting in person or by phone. Our firm charges a flat fee for this. Feel free to contact us to learn more.

Aaron

jane VikseApril 30, 2012, 8:45 pm

7 years ago i had to sign a non compete with the Real Estate broker, i was told that since it did not have an end date and automatically renewed each year, just to sign it. i signed it, he is impossible to work with, changes the rules to fit him and now has told me that my assistant can’t answer the telephone. i would like to start my own company as i am a broker too. does that non compete hold??

Rick CotaApril 26, 2012, 6:00 pm

Hi Aaron,

Interesting question here for you. I had recently partnered in business with my brother inlaw back in October 2011. In doing so we created a business developing web applications. I was the money maker and together we built a pretty sophisticated software application utilizing many ideas that we both had to create what we did. Now 6 months later, we have parted ways. He took the company and moved on and I decided to move on as well. I am in the process of developing a model that functions and operates in the same manner and about 4 weeks out from launch. There was never any documents signed regarding privacy, non compete, non solicitation or non disclosure. Not a single document signed for anything.

Our previous customers have expressed a desire to move their accounts to me because of previously established long standing relationships in years of business together. The lead list of customers signed during our business venture was supplied by myself and nothing was supplied to e by my brother in law.

Questions is this:

With no documents having ever been signed, do i face any back lash for creating similar software and would I face any backlash granting the wish of customers desire to continue our business relationship?

Other attorneys have said i am free to do whatever I wish.

Please advise.

Thank you for your time.

Warm regards.

Aaron Hall, Minnesota LawyerApril 25, 2012, 9:46 pm

Al Olson:

Thank you for your message about seeking a non-compete agreement. While I have seen “biolerplate” forms online, the difficulty is that they must be carefully customized to the circumstances in order to avoid being overly broad (creating enforceability problems) or too narrow. Our firm charges a fixed fee of $500 to draft a non-compete agreement, which also includes a confidentiality provision and non-solicitation provision. Is this in line with your expectations?

Aaron

al olsenApril 25, 2012, 11:06 am

This non-profit dental clinic serves only patients on State programs, MA/MnCare. We have utilized volunteers for about 5 years. We are now trying to hire a fulltime staff, including a dentist. My volunteer dentist want a non-compete only for our dentist starting a new clinic when leaving ours. They are not concerned about taking patients of course, nor buying an existing office or going to work for an existing office. This should make for a very short no-compete?? I have been searching for a “biolerplate” form, due to our non-profit budget. No luck so far. Any thoughts would be greatly appreciated.

Aaron Hall, Minnesota LawyerApril 17, 2012, 10:43 am

Tim Pierce:

In general, a non-compete agreement is binding for a first employer as well as subsequent partners if signed when the employee starts working with each. For your circumstances, a careful legal analysis of the documents and some additional facts would be necessary to specifically ascertain your legal rights and options.

Aaron

tim pierceApril 13, 2012, 3:37 pm

I signed a non-compete with an employer 11 year ago who then partnered with another company to sell the same products I had been selling. While employed I was told I had to sign a non-compete with the partner company. I was not paid to do so but over the years, in addition to W-2 income from the first company, I did receive 1099-misc bonuses from the partner company. I was laid off at the end of 2011 (my position was eliminated) severing my relationship with both companies. Is the non-compete binding?

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